Israel Faces Record Compensation Payouts as Iran War Damage Nears 1 Billion Shekels

If the war with Iran continues over a prolonged period, the Ministry of Finance plans to extend compensation to cover indirect losses, including impacts on businesses. Additionally, insurance policy sales for property contents surged in a single day—surpassing an entire year’s worth.

Compensation Fund Under Pressure

The Compensation Fund operates independently from the state budget and is financed through real estate taxes. Before the war began, it held 18 billion shekels. Since October 7, over 20.5 billion shekels have already been spent on war-related compensation.

Currently, the fund holds only 9.5 billion shekels. If the war persists, the government may need to seek new funding sources, likely increasing the national deficit.

Record Damage in Early Days of Iran War

Compensation is divided into direct and indirect losses. Early visual assessments suggest that direct damage from Iranian missiles already exceeds that caused by Gaza, Lebanon, and Yemen’s rocket fire, including prior short rounds with Iran.

In just two days, damage has reached hundreds of millions of shekels. Before the Iran escalation, 2.5 billion shekels had already been paid for direct damage alone. With severe destruction to buildings and infrastructure, that number is expected to rise significantly.*

Damage inspectors are currently deployed to rocket impact sites to assess and process claims. While there’s no exact figure yet, the scale of destruction is exceptional by Israel’s wartime standards.

For comparison:

• The 3,000 rockets fired by Hamas on October 7 destroyed a few buildings.

• The recent Iranian attacks damaged over 10 buildings, many of which must be completely demolished—with visuals reminiscent of Gaza war zones.

• Reconstruction of these buildings will cost tens of millions of shekels.

Over 600 Families Displaced

Roughly 600 families have been evacuated. Municipal authorities are temporarily housing them in hotels, taking advantage of the drop in tourism due to war and the cancellation of Pride Week travel.

Later, these families will move into rental apartments, with costs covered by the Property Tax Compensation Fund, matching what they paid for their damaged homes.

Indirect Losses Could Surpass Direct Damage

The biggest financial burden may come from indirect losses. The Ministry of Finance announced plans for broad civilian support if necessary. Officials are considering an economic aid framework, but no official plan exists yet.

Any such aid will require Knesset legislation or legal amendments, amid criticism of Israel’s lack of automatic emergency assistance programs.

Economic Ripple Effects

Businesses already suffering include:

• Event venues, restaurants, and cultural spaces closed due to gathering bans

• Wider industries affected by a drop in economic activity

One pressing question is whether the government will intervene in the labor market, as it did in previous crises—perhaps by covering unpaid leave or compensating employers directly.

With uncertainty rising, policymakers face pressure to provide swift, structured relief, not only for property losses but also for the growing economic fallout from a war with no clear end in sight.